Australia | 1:13 PM
Amidst a difficult US housing market backdrop, James Hardie is concentrating on further organic growth following a strong first quarter.
- James Hardie Industries' Q1 beat expectations
- Organic sales showed impressive growth
- In a weak US housing market, the company is targeting organic growth
- Some positive signs in the US R&R market
By Greg Peel
Building materials company James Hardie Industries ((JHX)) delivered first quarter FY27 earnings 5% ahead of pre-announced guidance, which almost entirely reflected an updated policy to take equity compensation expense below the line.
The company has now provided second quarter guidance and updated its full year guidance following a stronger than anticipated first half (and equity compensation change).
On a like-for-like basis, second quarter earnings guidance came in 12% ahead of consensus, which UBS notes reflects market share gains following the closure of the Japanese Nichiha siding business, on top of strategic wins in Siding, alongside the impact of the load-in of new national sole distributor, Idaho-based building materials company Boise Cascade, in the Decking segment.
The stronger first half base drove a 3% upgrade to the mid-point of FY27 earnings guidance, with the implied outlook for the second half left largely unchanged.
Management considers the guidance to be prudent in the context of channel volatility given distributor realignment activities and ongoing uncertainty on the macro backdrop.
Organic Growth
Organic net sales, excluding the recent acquisition of US-based building materials company Azak, in North America Fibre Cement (NAFC) grew an impressive 20% in the quarter, Ord Minnett notes, on both volume (as customer inventory levels normalised) and price increases.
Operating cash flow was 45% above consensus, and more than halfway to achieving James Hardie’s re-affirmed FY27 target.
Management expects the siding and trim segment to deliver organic growth from repair and remodel (R&R) expansion and improved mix. The deck, rail, and accessories segment is expected to experience improvement in market penetration.
In addition, synergies from the Azak acquisition, manufacturing cost savings, and a roll-off in integration and acquisition-related costs should drive earnings growth.
Capital allocation priorities for FY27 are unchanged, and remain firstly on organic growth, followed by disciplined deployment of capital, and finally reducing leverage, targeting less than 2x net leverage by the end of the second quarter of FY28.
With the footprint well positioned today to support demand, management does not anticipate the need for major new capacity in the near term.
Macquarie believes commercial synergies will become a central focus. the evolution of supply chain and channel strategy, manufacturing efficiencies and the impact of sales integration (combined with expanded distributor relationships) all support this narrative.
While a housing market recovery remains elusive, there are some early recovery signs in R&R, Macquarie suggests.
Morgans agrees James Hardie is performing well against what remains a challenging macroeconomic backdrop. The legacy James Hardie division was the callout, growing organic net sales by 20% as both price and volumes outperformed.
Azek saw a softer quarter as sales declined -5%, a trend which is expected to reverse in the second half. FY27 guidance was largely in line with expectations, as a strong second half guide leaves scope to accommodate a weaker market through the period.
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